Pentagon: $11B In Modernization Cut From FY2017 Request To Comply With Budget Agreement

Among the last-minute cuts made in the Fiscal Year 2017 budget request were four service life extension programs for LCACs, above, and 77 Joint Light Tactical Vehicles to replace the Humvee, also above. US Navy photo.

The Defense Department made cuts from several big acquisition programs out of necessity, with a pair of decisions affecting the Pentagon’s Fiscal Year 2017 budget request coming in the months and weeks before the request was due, the DoD comptroller told reporters on Tuesday.

Speaking just after the FY 2017 budget request was released, Michael McCord explained that the Pentagon had to cut $17 billion from its budget request in the last six weeks, after two congressional votes changed the military’s plans.

“It wasn’t until early November, as you know, that we got a budget deal that told us what top line we were actually going to get for the work we’ve been doing starting back in late spring,” he said, with the budget agreement providing a lower topline than the Pentagon had been planning for.
“So, we were far along in our process by then in building this budget, and we really had to scramble the last six weeks or so to cut $17 billion … and it was only probably in the last ten days of our process that we knew what Congress had done to the ’16 budget in the Omnibus Appropriations Bill,” which finalized FY 2016 spending and therefore could affect the 2017 request.

Given the last-minute cuts that needed to be made – and a desire to not take from pay, end strength or funding to restore troop readiness – Pentagon officials decided trimming major acquisition programs, and aviation programs in particular, was the best path forward. After adjusting the budget to include government-wide economic assumptions, lower fuel prices and other conditions favorable to the budget, the Pentagon was left with about $11 billion in programmatic cuts to make.

“Modernization took the brunt of the reduction. I would say not in a stupid way: we didn’t terminate programs. We didn’t break multi-years. Neither on the people side did we issue RIF (reduction in force) notices, things like that. So we didn’t do the type of things that, you know, that would involve sort of flailing around and breaking things,” McCord explained.
“We were careful and thoughtful in how we approached this. … Especially when you have kind of a short-term, in this case, a two-year budget deal that tells you you have less money, but you don’t know what the future holds, it doesn’t make a lot of sense to try and fundamentally change your force structure, RIF people.

“So we went to the modernization account, which tends to be the most volatile,” McCord continued.
“And that’s where we had to take some risk. So you’ll see, for example, 24 less Black Hawks, five less Joint Strike Fighters for the Air Force; fewer V-22s. The aircraft procurement accounts, in total $4 billion less; less money for shipbuilding.”

Within Navy and Marine Corps accounts, the Pentagon canceled the four planned Landing Craft Air Cushion (LCAC) service life extension programs (SLEPs) and cut two Bell-Boeing MV-22s from a FY 2013-17 multiyear procurement contract, leaving funding for 16, according to McCord’s presentation and Navy budget material.

The Army and Air Force faced similar cuts to major acquisition programs. The Army lost 24 UH-60 Blackhawks and nine AH-64 Apaches in last-minute budget talks within the Pentagon, and the Air Force lost five F-35A Joint Strike Fighters and three C-130J airplanes.

Overall, aircraft procurement was cut $4.4 billion across the services, shipbuilding was cut $1.75 billion, military construction was cut $1.1 billion and other procurement was cut $2.6 billion to adhere to the congressional budget agreement.

“These are not maybe things that we love to do, certainly, but as we talked about protecting readiness recovery, that people are our most important asset, and with the kind of inadvisability of trying to make a rapid change in force structure based on a fairly short-term budget signal of a two-year deal, this is where we had to go,” McCord said.

Despite the timing of the budget deal causing some headaches for the department, McCord said the Pentagon was appreciative of the stability and higher topline the budget deal brought.

“One of the reasons that the secretary will say and has said that he was grateful for the budget deal is that it jumped us up a good $20, $25 billion from where we had been stuck in a rut for three straight years, down to the $495 billion level. So, I would certainly much rather be in the $520 (billion) neighborhood than in the $490 (billion) neighborhood, and that’s what this budget deal did for us,” he said.
“We got some stability, which is important to the troops, for our own planners, for our industry partners. And so, in that sense, the deal was both a step up to much closer to where we think we need to be, and also, again, some near-term certainty, which was probably the best that we were going to expect under the circumstances.”